office

Manhattan Office Market Shows Signs of Life: Leasing Surges Amid Gradual Return to Work

By Columbus International,14 August 2024

In a surprising turn of events, Manhattan’s office market is showing resilience and adaptability in the face of ongoing challenges. Recent data suggests a notable uptick in leasing activity and a gradual return of workers to offices, offering a glimmer of hope for the beleaguered commercial real estate sector in New York City.

According to a report by brokerage Colliers (CIGI), Manhattan saw a significant boost in office leasing volume last month. July witnessed a 58% increase in leasing activity compared to June, with 3.87 million square feet of office space signed. This figure not only represents a month-over-month improvement but also outpaces last July’s volume by an impressive 67%.

The surge in leasing activity coincides with a gradual increase in office occupancy. A joint report by Avison Young and analytics firm Placer.ai reveals that select Manhattan offices were 29.3% busier on Mondays in June compared to the same period last year. This trend suggests that while the traditional five-day office week may be a thing of the past, employees are slowly but surely returning to their workplaces, particularly at the start of the week.

However, the recovery is not uniform across all of Manhattan. Lower Manhattan, for instance, has seen limited growth in office leasing during the second quarter. The Alliance for Downtown New York reports that leasing in this area increased by only 1% compared to the first quarter and remains 17% below pre-pandemic levels. Year-over-year, leasing in Lower Manhattan has plummeted by 48%.

Despite these challenges, certain sectors are driving demand in the Lower Manhattan office market. Technology firms led the charge, accounting for 36% of the total space leased in the second quarter. Legal and finance industries followed, each representing 15% of leased space.

The largest lease of the quarter in Lower Manhattan was secured by financial and software firm Stripe, which took up 147,509 square feet at 28 Liberty Street.

New York City’s office market remains the largest in North America, with nearly 730 million square feet of office space across its five boroughs, according to CoStar data. Manhattan alone accounts for 82% of this inventory, primarily concentrated in prime business districts south of 59th Street.

The market is highly segmented in terms of price and quality. Premium “trophy” office spaces in Manhattan command average asking rents of around $100 per square foot, while Class B and C spaces in Manhattan and the outer boroughs are priced at $54 and $40 per square foot, respectively.

As Manhattan’s office landlords navigate this complex landscape, they face the dual challenge of attracting tenants in a competitive market and encouraging a more consistent return to office work. The recent uptick in leasing activity and gradual increase in office occupancy offer encouraging signs, but the road to full recovery remains long and uncertain.

In this evolving scenario, landlords and tenants alike are likely to continue adapting their strategies, potentially leading to innovative lease structures, enhanced office amenities, and flexible work arrangements that balance the benefits of in-person collaboration with the flexibility that workers have come to expect in the post-pandemic era.

The Revival of New York City’s Office Market

By Columbus International,5 June 20245 June 2024

New York’s iconic skyline is undergoing a transformation as major companies capitalize on the city’s weakened office market to revamp their workspaces. In the wake of the pandemic’s disruption to traditional office life, savvy firms are seizing opportunities to enhance their brands and create environments that foster collaboration and attract top talent.

The New York Bargain Hunters With office vacancies soaring and prices dropping, 2023 became a prime year for companies to go trophy hunting in New York. Investment sales of office properties plunged 59% citywide to just $3.2 billion as hybrid work took hold. The average value of Manhattan offices fell 22% to $848 per square foot. But this shakeup opened a rare window for prospective buyers.

Wells Fargo snagged over 400,000 square feet at the coveted 20 Hudson Yards development for $408 million. Hyundai acquired a newly redeveloped Tribeca building for $275 million to house its showroom. And NYU purchased prime real estate in Manhattan and Brooklyn totaling nearly $220 million. Even luxury retailers got in on the New York fire sale. Prada claimed a $822 million Fifth Avenue flagship location, while Gucci‘s parent company Kering paid close to $1 billion for another stretch of the iconic shopping corridor. Revamping the Office Experience For companies taking the plunge, the goal is to redesign the office environment itself. Google‘s vibrancy is on full display at its new $2 billion St. John’s Terminal campus. The 1.3 million square foot former rail terminal has been reimagined as an urban oasis with terraces, gardens, and ultra-modern workspaces. “It’s a testament to New York’s… diverse talent pool that keep us rooted here,” said Sean Downey, President of Google’s Americas operations. With 14,000 New York employees, Google is doubling down on flexible, amenity-rich spaces that enhance the in-office experience.

The “office” is being redefined for a hybrid age. No longer simply spaces to work, tomorrow’s corporate headquarters aim to inspire collaboration, rejuvenation and pride. As the pandemic catalyzes evolving workplace models, controlling the physical workspace has become a competitive advantage.

The revamp isn’t limited to offices either. Amid skyrocketing e-commerce demand, companies are reinventing New York’s industrial spaces as well. FedEx alone dropped $248 million acquiring a massive distribution facility in Brooklyn’s Sunset Park neighborhood. Amazon, which had already established a significant logistics footprint in the borough, saw two of its Brooklyn warehouses trade for over $560 million combined in 2023. With its unbeatable access to Manhattan and surrounding areas, Brooklyn is rapidly emerging as an e-commerce distribution hub. From glitzy corporate campuses to gritty warehouses, New York’s urbanscape is being remade by forward-thinking companies. The pandemic’s disruption has created a unique opportunity to transform the very nature of the workplace. And in the ultimate live-work-play city, companies are going all-in.

Main source: Forbes

South Florida’s Bustling Offices Buck National Trend

By Columbus International,16 May 20249 November 2024

While remote work remains prevalent across most of the United States, South Florida stands out as an exception where office attendance is nearly back to pre-pandemic levels. According to data from Placer.ai, which tracks mobile phone location data, office visits in the Miami metro area (including Fort Lauderdale and West Palm Beach) were just 14% below April 2019 levels. This contrasts sharply with the national figure of a 32.2% decline compared to four years ago.

For the past three months, South Florida has led all U.S. metro areas in office attendance after overtaking New York City. April marked the region’s highest level of office foot traffic since before the COVID-19 pandemic began. The gap from 2019 narrowed slightly last month to 14.1%, down from 9.4% in February. The only other metro area achieving at least 75% of its 2019 office occupancy is New York City at 16.9% below its pre-pandemic benchmark. Washington D.C. (-26.5%), Dallas (-27.6%), San Francisco (-49.3%), Los Angeles (-43.3%), and Chicago (-41.1%) all lag further behind. Despite San Francisco’s last place national ranking, it actually led the country in year-over-year office visit growth at 26%. Miami took second with a 23.5% annual increase in foot traffic. Nationwide, office visits grew 18.2% year-over-year, with the gap from 2019 levels the smallest since August of that year. South Florida’s robust office market has benefited commercial property owners.

Asking rents in Miami rose over 9% annually in Q1 2023 per Cushman & Wakefield. Tenants are flocking to premium modern buildings while older offices see high vacancy. Over 70% of 3 million SF available for sublease is in pre-2000 properties, with just 220,000 SF available in buildings constructed after 2015. Largest leases are also concentrating in top-tier properties more than in past years. Since 2019, the average size of new leases has been bigger in Class A buildings compared to lower tiers according to Avison Young data. These trends have allowed most of South Florida’s office markets to achieve greater rent growth than nearly anywhere else in the U.S. since 2019, with stable vacancy outside of Fort Lauderdale. Class A asking rents in Miami-Dade County spiked over 20% between Q1 2023 and Q1 2024.

The Transformation Revolution: Old Offices Turn into New Homes

By Columbus International,24 January 2024

Already in the first weeks of 2024, promoters are undertaking an unprecedented mission to redesign old office buildings into actual residential units, setting a record for the highest number of transformed housing units. This growth is a direct response to the remote and hybrid work revolution that began in 2020, leading to high vacancy rates for commercial spaces in many American cities.

Among the proposals is the idea of alleviating the high costs of housing marked by persistent inflation by creating more supply. Providing an overview is the study conducted by RentCafe, which discovered that 55,300 housing units are undergoing conversion from office buildings, marking a quadruple increase compared to 2021. While the year-on-year growth of 22% is more modest than in previous years, the demand for residential space remains a driving force behind this transformative movement.

Despite challenges such as higher financial costs and extended timelines associated with zoning and permits, industry experts like Doug Ressler, the head of business intelligence at Yardi Matrix (RentCafe’s sister company), assert that this trend is destined to endure. Local governments are incentivizing the conversion of more office buildings as they “remain vacant due to hybrid work and preferences for newer and more efficient office spaces” after the pandemic. In particular, these government initiatives aim to breathe new life into these spaces. In Washington, DC, plans are underway to convert office spaces into 5,820 housing units – a significant increase from the previous year.

Following closely is the New York metropolitan area, with 5,215 new apartments planned from former office spaces. Notably, New York’s growth is fueled by the transformation of 25 Water St. in Manhattan, formerly an outpost of JPMorgan & Chase Co., into 1,263 apartments – the largest project of its kind in the country. Dallas takes the third spot, with 3,163 housing units created from offices, representing 83% of all conversion types, the highest share among major cities.

Revival of the Cubicle: As Office Workers Return, a Surprising Comeback Unfolds

By Columbus International,27 December 2023

As the calendar marches towards 2024, New York’s office sector is witnessing a glimmer of hope amid a landscape of challenges that have redefined the traditional scenario. The dynamics of demand, employment trends, and the ever-changing preferences of the workforce have compelled office owners and real estate investors to adapt to unprecedented changes.

Low Demand and High Availability: A Continuous Challenge
Office owners and real estate investors in New York are gearing up for another year of low demand and high availability. The consequences of the pandemic have left a lasting imprint on how companies operate, with many opting for remote or hybrid work models. The struggle to attract tenants to traditional office spaces persists, and navigating this challenging terrain will be a key theme for the upcoming year.

Record Office Occupancy During the Holiday Season
In an unexpected reversal, office occupancy levels are reaching new highs during the holiday season. This increase contrasts sharply with the prevailing trend of remote work and signals a potential shift in attitudes toward in-person collaboration. The festive season has become a catalyst for employees to reconnect with their work environment, sparking theories and hypotheses about the role of the office in fostering team spirit and corporate culture.

The Impact of Covid-19 on Workspace Trends
The pandemic has acted as an amplifier for a trend that was already underway: the growing importance of quiet and private spaces within work environments. While remote work provided relief from noisy and disruptive colleagues, it also introduced new distractions, such as interruptions from family members and the constant temptation to engage in household chores or spend time on social media. With the return of workers to the office, the focus on creating conducive work environments to address these challenges has never been more crucial.

The Rise of Quiet Spaces: A Billion-Dollar Market
The demand for private spaces in offices has given rise to a flourishing market. Cubicles and partitions, once overshadowed by open collaboration spaces, are now valued components of office design. According to a 2022 report from Business Research Insights, this market is expected to grow from $6.3 billion to $8.3 billion in the next five years, underscoring the significance of this transformation in workplace dynamics.

Adapting Workspaces to Hybrid Work Models
Companies are navigating the delicate balance between remote work and in-office mandates, prompting a reevaluation of office layouts. Grassi, a New York-based auditing and accounting firm, exemplifies this trend by reconfiguring its offices into hybrid spaces. The emphasis is on creating a combination of cubicles or semi-private areas alongside open collaboration spaces, reflecting the evolving needs of the workforce.

Versatile Workspaces for a Diverse Workforce
Recognizing the diverse needs of employees, many employers now offer a range of workspaces, including shared offices, conference rooms, phone booths, and libraries. This approach aims to strike the right balance between collaborative work and individual concentration, catering to the preferences and productivity requirements of a varied workforce.

As New York’s office sector looks ahead to 2024, the industry is at a crossroads, balancing the challenges of low demand with a renewed focus on creating versatile and employee-centric workspaces. The evolution of office design, driven by the lessons learned during the pandemic, will continue to shape the future of work in the bustling metropolis.

Source: The New York Times

Office Crisis: WeWork Files for Bankruptcy as the US Market Struggles with Space Reduction

By Columbus International,25 November 2023

Transforming the office landscape with an injection of flexibility is a challenge faced with courage. However, it is the burdensome rigidity of lease agreements with major property owners that has led WeWork, the American giant of shared office spaces, to file for bankruptcy under Chapter 11. Since the onset of the pandemic, the office market in the United States has failed to recover. A scenario of vacant square meters and declining rents, which WeWork’s case threatens to exacerbate. The leadership of WeWork assures that this situation is confined to the US and Canada market (the company has 777 locations in about 40 countries and does not affect Italy), but, as stated in the application filed by the company, it will result in the termination of over 40 lease contracts in New York alone.

According to the latest Jll Office Report Q3 – source: Sole 24 Ore – office leasing in the US has decreased by 35% since 2019, with rents falling by 6%. In September, compared to the same month in 2022, defaults on loans for office buildings tripled to around 6%. The net absorption of office spaces decreased by 1.7 million square meters in the third quarter, bringing the total loss of office space to over 4.7 million square meters in just one year. On a quarterly basis, the vacancy rate increased by 39 basis points to 21%, and in just one year, construction began on only 730,000 square meters of new office space, which, in perspective, will mean a lower supply of new and high-quality products compared to demand (with corresponding price pressure). “WeWork – as George Schultze, founder of Schultze Asset Management Llp, wrote in Forbes – is an extreme example, but there is now much concern in the commercial real estate market in general. Banks and insurance companies have financed loans to investors who used a minimal share of their own capital when interest rates were very low, expecting them to remain low for a long time. Now that short-term rates are above 5%, many investors are in trouble, and many lending institutions will take a hard hit when buildings are revalued under current market conditions.”

According to Moody’s, this will have a negative impact on cash flows and market office values, increasing negative sentiment and making refinancing more difficult in the next 12-18 months. According to Nareit (the American Association of Real Estate Investment Trusts), compared to 2015, the market value of offices in publicly traded real estate investment trusts has dropped from 14% to 4%. Although fund managers, as shown by Jll data, note that demand for prime offices, i.e., new high-end spaces (strategic locations, zero emissions, innovative materials and spaces, services such as green areas, restaurants, gyms), remains healthy, albeit subdued. Rents have also increased by an average of 4% since 2019. However, as emphasized by Nareit, these are indeed innovative but “traditional” offices: “Coworking will remain, but it will be a niche.” Perhaps. But opinions diverge here. “Post-pandemic hybrid work is prompting tenants to reduce spaces,” explains Jose Pellicer, Global Head of Investment Strategy at M&G Real Estate, “but the situation in the US is different from in Europe. In the United States, the return rate is 50%, in Europe, it’s 75%, driven by factors such as smaller homes and shorter commuting times.”

“The case of WeWork has raised questions about the future of flexible offices,” wrote Julie Whelan, Global Head of Occupier Thought Leadership at Cbre. However, our recent survey among companies using them indicates a growing demand for flexible lease agreements to meet increasingly relevant space planning scenarios. Therefore, we believe that WeWork’s difficulties are largely attributable to its business model, which tied it to long-term lease commitments made before the pandemic, while simultaneously facing significant costs in a context of sharply rising interest rates. In the latest Bloomberg Market Live Pulse survey, 65% of investors believe that the US office market will only begin to recover after hitting rock bottom; two out of three expect this recovery to occur in the second half of 2024.

Repurposing Office Buildings: American Universities’ Novel Approach to Campus Expansion

By Columbus International,11 October 2023

In an unexpected trend, colleges and universities across the United States have found a unique solution to their campus expansion needs by repurposing vacant office buildings. This innovative approach allows educational institutions to acquire office spaces at attractive prices in a sluggish real estate market and subsequently adapt them for academic use. However, while it effectively addresses their need for additional facilities, it doesn’t alleviate the broader problem of empty office spaces, which has been exacerbated by the shift to remote work during the pandemic.

A New Approach to Campus Expansion
For colleges and universities in the United States, acquiring office buildings has become an increasingly popular means of expanding their campuses. The availability of such spaces at bargain prices, attributed to a sluggish office market, makes this approach particularly appealing. The renovations required to adapt these structures for academic use are typically less costly and time-consuming than constructing new buildings from the ground up.

A Sluggish Office Market
While this creative approach serves the purpose of academic expansion, it doesn’t mitigate the underlying issue of a sluggish office market. The COVID-19 pandemic has drastically reduced the demand for office spaces, with the nationwide office availability rate exceeding 24%. This increase from 17% before the pandemic reflects the reduced demand for leased office space, forcing property owners to grapple with this surplus. Some office buildings have lost so much value that mortgage-holding banks have taken control of them.

Government Initiatives
In light of the current environment, there is growing interest in converting office buildings into residential spaces to address the national housing shortage. However, this transition involves overcoming various regulatory and architectural hurdles, such as rezoning for residential use, kitchen and bathroom installations, and ensuring access to natural light.

College Diversification
Colleges and universities have explored a range of real estate diversification options. In response to the increasing demand for on-campus accommodation and the limited availability of dorm space, some institutions have even ventured into acquiring hotels. However, the low costs of office buildings have proven particularly attractive to many institutions, even when they do not have an immediate use for the space.

Various Case Studies
Several institutions have embarked on this novel approach to acquiring office buildings. For instance, the University of Southern California purchased an office building in Washington, D.C., to serve as an immediate satellite campus. The University of Louisville was even offered an office building for free by Humana, a health insurance company. While these acquisitions benefit the institutions, they can also have implications for towns and cities, as colleges and universities typically do not pay taxes on their academic buildings and dorms, effectively removing these properties from tax rolls.

Overcoming Challenges
Repurposing office buildings for academic use comes with its own set of challenges. For example, buildings designed for office work may not have sufficient ceiling height to accommodate the ductwork required for improved ventilation, and large floor plans can make ensuring natural light in every classroom a challenge. This transformative approach to campus expansion showcases the ability of educational institutions to adapt and evolve within a changing real estate landscape. These creative solutions help universities grow while providing opportunities for towns and cities to revitalize downtown areas and bring life to quiet districts that have suffered due to remote work trends.

Please note that the information provided is based on The New York Times article.

Returning to the Office: Exploring the Evolving Landscape of Workplace Policies in Leading Corporations

By Columbus International,25 August 202314 September 2023

The tune is changing. Goldman Sachs is adopting a stricter approach to the remote work situation, requiring employees to return to the office on a full-time basis, as reported by Bloomberg. So, forget about the dream of opening the doors to your office only two or three days a week. The decision by Goldman Sachs to amplify expectations regarding in-office presence might motivate other organizations to do the same. According to Jason Greer, founder and president of Greer Consulting, the prevailing reality is that a return to the five-day office week is imminent. He expressed this sentiment during a CNBC interview, emphasizing that businesses are inclined to enforce this requirement. Greer emphasized that employers perceive the arrangement as straightforward: if you’re paid to work in the office, you’re expected to be there. If someone disagrees, they are free to seek opportunities elsewhere, considering the substantial group of job seekers competing for similar positions. Greer pointed out that the business landscape has changed significantly over the past two years. In the past, companies struggled to attract talent, offering various incentives and higher salaries. However, the current job market offers a surplus of potential candidates, granting them more bargaining power. As a result, companies are inclined to request a full return to the office, even if it means losing a portion of their workforce.

Executives, as noted by Greer, acknowledge the possibility of losing employees due to stricter directives. However, they see this as an opportunity to replace departing staff with individuals who can be hired at more cost-effective compensation levels than those leaving. Greer cited cases where employers went to great lengths, offering $50,000 to $100,000 above the desired salary range during the labor shortage caused by the pandemic. In the current scenario, with layoffs widespread in many industries, employers are in a stronger position. Many companies have also realized that maintaining productivity is achievable with a leaner workforce. Moreover, the push to bring employees back to the physical office is not limited to Goldman Sachs alone.

Major players like Amazon and Meta (formerly known as Facebook) are also exerting similar pressure. Meta, for instance, has communicated the expectation that the majority of employees resume on-site work for at least three days a week starting from September 5. Non-compliance with this directive could potentially jeopardize employees’ jobs. Amazon, on the other hand, is promoting the return of remote employees to their designated “hub” locations or exploring alternative employment options. Interestingly, even Zoom, a company that played a critical role in catalyzing the remote work trend during the COVID Era, is now promoting a greater in-office presence. Zoom is encouraging employees located within 50 miles of its offices to return to on-site work for at least two days a week. Greer emphasized that the reason behind this push for in-office work is rooted in the understanding that certain connections and interactions are irreplaceable in a remote work context characterized by virtual operations. He highlighted the importance of face-to-face interaction in fostering a cohesive organizational culture. This involves managers getting acquainted with their team members, mutual understanding among colleagues, and establishing significant interpersonal dynamics, elements that can only be fully realized through direct, in-person interaction.

Additionally, Amazon officially unveiled its new Fifth Avenue office building, marking a significant shift in their approach to the workplace. Three years ago, they acquired the historic Lord & Taylor department store building from WeWork for nearly $1 billion. In May, the e-commerce giant implemented a three-day-a-week office policy and has been closely monitoring employee locations, reaching out to those suspected of remote work exceeding company guidelines. During the grand opening attended by New York City Mayor Eric Adams, Amazon’s Vice President of Global Real Estate and Facilities, John Schoettler, revealed that employee office presence has been steadily increasing since May, though he refrained from providing specific figures. The company is firmly committed to in-person work, viewing it as the optimal way to foster innovation and serve their customers. Schoettler emphasized the transition period, acknowledging that adjusting to remote work took time for many employees. However, those returning to the office have expressed satisfaction with the change.

The building, located at 424 Fifth Ave., has a rich history. Initially, it served as Lord & Taylor’s flagship department store when it opened in 1914, a distinction it held for over a century. After WeWork’s ambitious plan to transform it into a corporate headquarters fizzled out due to financial troubles, Amazon acquired the property for $978 million, commencing a complex renovation process. Approximately 2,000 of Amazon’s employees now call this building their workplace, constituting a fifth of the company’s current workforce in Manhattan, Queens, Brooklyn, and New Jersey, totaling around 10,000 employees. While Amazon regularly reviews its leases and real estate arrangements, Schoettler expressed uncertainty about any current plans for office space consolidation. The company also holds leases for spaces in other WeWork locations, including 90,000 square feet in RXR Realty’s 75 Rockefeller and nearly 210,000 square feet in 1440 Broadway. Adaptations to the former Lord & Taylor building reflect evolving worker preferences and behaviors. With an increased emphasis on collaboration spaces since the onset of the pandemic, conference rooms have diminished in size, and assigned seating has given way to a “neighborhoods” model.

The building boasts amenities like a rooftop terrace, a dog run, lounges, and a cafeteria named after former Lord & Taylor President Dorothy Shaver. Original artifacts from the department store’s history are integrated into the design. Additional features, such as a plant-adorned staircase, elevators, updated bathrooms, and kitchens, have been incorporated. The ground floor houses both retail and 1,500 square feet of community space established through a partnership with the City University of New York. This opening coincides with the broader challenge of adapting to remote and hybrid work environments. Office availability in Manhattan has reached a historic high of 19.9%, and many employees remain hesitant to return en masse despite encouragement from landlords and officials. Mayor Adams commended Amazon for its contribution to the city’s economic landscape, celebrating the transformation of the Lord & Taylor building as a symbol of growth and adaptation in the heart of New York City. He also playfully encouraged more frequent office attendance, especially for those seeking social interactions in the bustling city.